Canadian Unemployment Preview: Implications for the USDCAD

Summary:
• This is a preview of the Canadian employment change data, expected to be released to the public on Friday. The USDCAD is the currency pair in focus.

The Canadian employment data features on Friday at 1.15pm, and is composed of the Employment Change and Unemployment Rate figures for Canada. The timing of this report coincides with the release of the US Non-farm Payrolls report. This therefore demands extra vigilance from traders who want to trade the Canada employment data, as there will a number of competing indices to trade on.

On to the numbers. Analysts are predicting a drop in unemployment rate from 5.9% to 5.8%, along with an employment change of 31.8K jobs as opposed to last month’s -71.2K. This provides a scenario where there is an expected improvement of the employment numbers in Canada.

So what are the trade scenarios for this news event?

Read our Best Trading Ideas for 2020.

Trading the Canadian Employment Data: USDCAD Playbook

Given that the US Non-farm Payrolls data will be released at the same time, you can trade the USDCAD only if the US and Canadian employment numbers are pointing in opposite directions.  You want the Canadian numbers to tally, and then to head inverse direction to the US numbers. The deviation targets need to be spot on.

• If the Canadian employment change is 132K or higher, while the unemployment rate is static or lower than 5.8%, then this is CAD-positive.
• If the Canadian employment change is -174K or lower, while the unemployment rate stays the same or is higher than 5.8%, this is CAD-negative.

So to trade the USDCAD, you need to pair the following scenarios:

• CAD-positive employment data + USD-negative employment data: possibility of USDCAD drop by 40 pips or more, depending on the deviation.
• CAD-negative employment data + USD-positive employment data: chances of USDCAD buying will increase with a possibility of a 40-pip rise or more, depending on the deviation.

If you cannot handle these scenarios or you find them too confusing, simply use the definition of the Canadian employment numbers provided above and trade another pair such as the EURCAD or AUDCAD, depending on what those base currencies are doing on the day.